"Best knowledge and belief".

The insurer now has the obligation to inquire as to the medical condition of the applicant prior to the issuance of the policy or else coverage will apply.

How many times have you heard an insurer deny coverage due to a material misrepresentation on an insured's application for insurance? Under what circumstances may an insurer rescind coverage for misrepresentation in an insurance application? Often premiums are refunded to the insured; the claim file is closed; and the obligation is terminated. Insurers argue that any material misrepresentation lays the groundwork for the insurance carrier to deny the claim brought by the insured and thus void the insurance policy.

Green v. Life & Health of America

The Florida Supreme Court recently paved a new avenue in the realm of "material misrepresentation" in Allen Green v. Life & Health of America, 704 So. 2d 1386 (Fla. 1998). In Green, the Supreme Court looked at the issue of an insured's "best knowledge and belief." The court held that when the phrase "best knowledge and belief" is found in an application for insurance, a factual issue arises as to whether the applicant had knowledge of a previous medical condition which would negate coverage. Absent express fraud in the insurance application, as found in Continental Assurance Co. v. Carroll, 485 So. 2d 406 (Fla. 1980), the applicant cannot be denied coverage unless there is extrinsic evidence to show that the applicant knew of the condition which he or she denied in the application for insurance coverage.

In Green, Harold Green completed an application for insurance coverage with Life & Health of America, a home health care insurer. The application asked Mr. Green whether to the best of his knowledge and belief he had ever had kidney failure or chronic obstructive pulmonary disease.[1] Mr. Green responded in the negative. The evidence showed that while Mr. Green, an octogenarian, was suffering from what his physicians diagnosed as chronic obstructive pulmonary disease and renal failure, Mr. Green did not know of the medical conditions because his treating physicians never informed him that he had the specific diseases. Rather, his physicians told Mr. Green that he had "sluggish kidneys, a little asthma, and a little bronchitis."[2] Mr. Green was totally unaware of his true condition and, therefore, had no reason to reveal such a diagnosis on his application for insurance.

Mr. Green later made a claim under the policy. The insurer denied the claim on the basis that there was a misrepresentation on the application of insurance and, therefore, the policy should be canceled and premiums returned.

Harold Green sued Life & Health of America, Inc., on the denial. When Harold Green died, his estate proceeded forward. The record reflected that Life & Health of America did no investigation before issuing the policy, although a treating physician was listed on the policy application. It was not until a much later date following issuance of the policy (approximately a year later) that the insurer conducted medical inquiry and found that Harold Green had suffered from chronic renal failure and chronic obstructive pulmonary disease.

Life & Health of America filed a motion for summary judgment and an affidavit in support indicating that otherwise it would not have issued the policy because there was a nonintentional material misrepresentation on the application for insurance coverage. The trial court entered summary final judgment on behalf of Life & Health of America, finding that there was a material misrepresentation which affected the risk, even if the misrepresentation was made in good faith.[3] The appellate court held that Continental Assurance Co. v. Carroll, 485 So. at 406, compelled it to confirm the granting of the summary judgment, despite the fact that Harold Green had no knowledge of his condition and that any misrepresentation was, therefore, unintentional.

Green cited on appeal a line of federal cases which imposed a different standard of accuracy, but the Fourth District Court of Appeal upheld the summary judgment based upon F.S. [sections] 627.409, and certified conflict with Carter v. United of Omaha Life Insurance, 685 So. 2d 2 (Fla. 1st DCA 1996).

Carter v. United of Omaha Life Insurance

In Carter, the court held that an insurer establishes a less stringent standard than that contained in F.S. [sections] 627.409(1), for determining misrepresentations, omissions, concealment of facts, and incorrect statements, when the policy application has a "knowledge and belief" provision. If a knowledge and belief provision appears in a health insurance application, for practical purposes, the question becomes: If one answers to the best of one's knowledge and belief, how can he or she be penalized except due to extrinsic evidence of fraud?

In Carroll, the applicants had knowledge that their child had developed a heart murmur prior to completion of the application for insurance. In that instance, any misrepresentation materially affecting the risk (extrinsic fraud) could be proved by the evidence because the answer in the application was that the child was in good health. Based upon knowledge of the applicant, the court may find that the statement was false as a matter of law and grant a summary judgment on behalf of the health insurance provider.

Therefore, a case based upon best knowledge and belief can be defeated when it is proved that the applicant had knowledge of the defect and failed to include it on the application. Judge Pariente, in her dissenting opinion in Green v. Life & Health of America, 692 So. 2d 220 (Fla. 4th DCA 1997), discussed the twin qualifiers of knowledge and belief. Judge Pariente stated that the knowledge must not defy belief: "What the applicant, in fact, believed to be true is the determining factor in judging the truth or falsity of his answer, but only so far as that belief is not clearly contradicted by the factual knowledge on which it is based."

Federal Cases

Prior to the Supreme Court's analysis and opinions in Green, an emerging change in the law on insurance applications was occurring in the federal courts. For example, in William Penn Life Insurance of New York v. Sands, 912 F. 2d 1359 (11th Cir. 1990), a man named Pelegrino truthfully answered an insurance application based on his "knowledge and belief" that he did not have cancer or a blood disorder. Pelegrino later found out through testing that he had the HIV virus and he was diagnosed as having AIDS. The court held that since there was no evidence that Pelegrino knew of the disease at the time the application was completed, there could not be a misstatement because the application was based on Pelegrino's "knowledge and belief."

Apparently, the Supreme Court of Florida gave emphasis to Sands in formulating its opinion in Green.[4] In Sands, the responses to the questions by Pelegrino were held not to be misstatements or misrepresentations but they were entirely truthful and accurate according to the applicant's knowledge and information. F.S. [sections] 627.409 did not apply because: "In order for an insurer to rescind a policy due to a misstatement in the insured's application, such misrepresentation or nondisclosure must be in response to an insurer's request for that information."

In the Sands case, the only requested information was the disclosure to the best of the insured's knowledge and belief. This is exactly what was provided by Pelegrino, nothing more, nothing less. The Sands court explained that if the insurer wished to retain the ability to void the contract due to inaccuracies in the application, the "knowledge and belief" language should not have been included in the application. According to the court:

Such language would reasonably induce an insurance applicant to believe that they were covered under the policy if they answered the questions to the best of their knowledge and the insurer subsequently issued the policy. To permit an insurer to rescind a policy containing "knowledge and belief" language due to an unknowing misstatement not only contravenes the terms of the contract itself, but is unfair as well. Insurance applicants faced with a policy that unambiguously stated that it could be voided for unknowing misstatement might have rejected those terms and sought another policy, or they might have undergone a full physical examination to insure that their beliefs as to their health conformed to their representation. Conversely, had Penn Life really thought it essential to know the actual physical condition of its applicants, it could have mandated a physical examination as a condition of issuing the policy.[5]

Pre-issuance Investigation Now Advisable

Due to the Supreme Court's decision in Green, it is critical to review the application for insurance for the phrase, "the answers are full, true and complete to the best of my knowledge and belief." If that phrase appears on the application, then the applicant's knowledge and belief is what controls.

In Green, Life & Health of America knowingly promoted and sold insurance policies to elderly citizens, including those over 80 years of age. It is axiomatic that this age group of applicants would have some sort of maladies. Certainly every opportunity is afforded the prospective insurer to investigate a policy application, especially when the applicant discloses the names of treating physicians. If policies are sold to elderly individuals, and especially those 80 years plus, they, by their nature, likely will be a group exhibiting poor health. Accordingly, pre-issuance investigation should be mandatory when accepting those sorts of policies.

Defending a Client Whose Policy Has Been Canceled

Pragmatically speaking, what steps should the attorney take when representing an applicant whose policy has been canceled and premium returned?

1) Closely scrutinize the language of the actual policy application completed by your client. If there is a "knowledge and belief" phrase in the application, determine if the applicant had prior knowledge of the answer to specific questions answered in the negative, such as renal failure, heart attacks, chronic obstructive pulmonary disease, cancer, etc.

2) Meet with medical providers and obtain hospital and medical records, including doctors' notes, which may reveal undisclosed prior medical conditions affecting the risk.

3) Compare the applicant's answer on the application to the medical condition uncovered. Determine if the applicant was ever informed by medical providers that he or she suffered from a specific medical condition and, if so, when the condition manifested itself and when the patient first had knowledge.

It is clear that the Green case has eased the burden of an applicant in filling out an application of insurance, whether it is life insurance, home health, health insurance, or disability insurance, when the application has a "based upon your best knowledge and belief' provision. If the applicant can prove he or she truly has no knowledge of a malady, the applicant should prevail in any attempt by the insurer to deny coverage based upon nonintentional material misrepresentation of the policy.

Conclusion

The Green case now makes for a more equitable playing field for those applicants who may have been denied coverage because of conditions that existed that they were unaware of at the time of the completion of the application for insurance.

The ruling by the Supreme Court in Green is more equitable for the following reasons:

1) The applicant now has the assurance that based upon his or her knowledge and belief the policy cannot be terminated because of a finding by the insurance company that was beyond the applicant's knowledge and belief. The important thing now is the subjective "believable" thought of the applicant at the time of the completion of the application.

2) The Green case will avoid the cancellation of policies when the insurer knew that there might be a coverage problem due to conditions that were not known to the applicant at the time. For instance, a policy sold to octogenarians necessarily implies that the applicant may have a medical condition. Prior to the Green case, a denial of coverage was automatically sent out when it was found that the applicant did have prior medical conditions that were material to the risk but unknown to the applicant. Therefore, in an effort to be more equitable, the insurer now has the obligation to inquire as to the medical condition of the applicant prior to the issuance of the policy or else coverage will apply.

[1] Green, 704 So. 2d at 1388.

[2] Id.

[3] See FLA. STAT. [sections] 627.409.

[4] Green, 704 So. 2d at 1389-90.

[5] Sands, 912 F. 2d at 1364 n.7. See also Lee Master v. USAA Life Insurance Co., 922 F. Supp. 581 (M.D. Fla. 1996).

Jerold Hart is an attorney licensed to practice law in Florida and Colorado. He is a board certified civil trial attorney and his practice includes personal injuries, wrongful death, product liability, insurance claims, and other civil trial matters. Mr. Hart received a B.S. from Monmouth College in 1965 and a law degree from Rutgers University in 1968.

This article is submitted on behalf of the Trial Lawyers Section, Richard A. Gilbert, chair, and D. Keith Wickenden, editor.